1. Chapter Four Copyright, John Wiley and Sons, Inc. Chapter Four three Learning Concepts – Chapter 4 1. Identify the major payers in the international business arena. 2. Differentiate the degrees of MNE internationalization. 3. Identify the advantages and disadvantages MNEs possess. …/… The Multinational Enterprise. The Multinational Enterprise.

2. Chapter Four Copyright, John Wiley and Sons, Inc. Chapter Four three Learning Concepts – Chapter 4 (cont) 4. Know there are several essential capabilities all MNEs must possess. 5. Identify the typical features of developed and developing country MNEs. The Multinational Enterprise. The Multinational Enterprise.

3. Chapter Four Copyright, John Wiley and Sons, Inc. Types of Multinational Enterprises  The international committed company – has at least one plant or joint venture abroad.  The international leaning company – has foreign sales and/or a representative office and/or a licensing agreement abroad.  The multidomestic firm – has multiple international subsidiaries independent of headquarters.  The global firm – has integrated international subsidiaries controlled by headquarters.

4. Chapter Four Copyright, John Wiley and Sons, Inc. Types of Multinational Enterprises  The transactional firm – has subsidiaries that fulfill a variety of strategic roles typically performed by HQ.  The multinational firm – engages in FDI and owns or controls value adding activities in more than one country.

5. Chapter Four Copyright, John Wiley and Sons, Inc. Types of MNEs  The traditional Multinational Enterprise (MNE) is a firm with FDI that owns or controls value adding activities in more than one country.  The Small and Midsize International Enterprise (SMIE) are small and mid-sized enterprises engaged in international business.  MNEs from Developing and Emerging Economies (DMNE) consist of MNEs from emerging economies.

6. Chapter Four Copyright, John Wiley and Sons, Inc. World’s largest MNEs In 1998, the top 100 non-financial MNEs accounted for 13% of all foreign assets, 19% of all foreign sales, and 18% of all foreign employment.

7. Chapter Four Copyright, John Wiley and Sons, Inc. The Growth of Service MNEs Service organizations have entered the MNE population for the following reasons:  Economic transformation.  Globalization and liberalization of regulatory systems.  Advances in information technology and communications.

8. Chapter Four Copyright, John Wiley and Sons, Inc. The Image of the MNE The MNE has been both lauded and vilified for its impact on host and home countries. Among the more positive attributes are that MNEs provide knowledge, capital, technology, expertise, global affiliations, contributions to national productivity and exports, innovation, employment, and societal change.

9. Chapter Four Copyright, John Wiley and Sons, Inc. The Image of the MNE The MNE has been both lauded and vilified for its impact on host and home countries. Among the negative attributes, are that the MNE is perceived as a threat to national sovereignty, have unfair advantages over local competition, exploit government incentives at the expense of taxpayers, limit knowledge transfer to developing nations, exploit critical national and natural resources, and move on when their exploitation is finished.

10. Chapter Four Copyright, John Wiley and Sons, Inc. The Competitive Advantage of MNEs The MNE generally has large capital, human, brand, and technological resource base, it can use many countries. Global spread provides MNEs with diversification so they can compensate for SBU low performance and uncertainty and helps them overcome entry barriers and high start up costs.

11. Chapter Four Copyright, John Wiley and Sons, Inc. MNE Capability MNEs have a great many dynamic capabilites. MNEs have:  Familiarity with national culture, industrial structure, government requirements, existing relationships with suppliers, customers and regulators.  Strategic capabilities like technological assets, patents, trademarks, designs, products, and process innovation.  Managerial skills.  International experience.

12. Chapter Four Copyright, John Wiley and Sons, Inc. Types of MNEs – The DMNE MNEs from developed nations typically dominate global business. DMNEs, however, are making inroads. DMNEs face the following constraints and advantages:  Resource constraints.  Knowledge, sophistication constraints.  Sheltered environment constraints.  Home government support.  Flexibility.

13. Chapter Four Copyright, John Wiley and Sons, Inc. DMNEs Typically  Focus on Developing Markets.  Rely on third parties.  Have private governance.  Are likely to be manufacturing oriented.  Lack the extensive bargaining power of MNEs.  Are more likely to compete on price rather than product differentiation.

14. Chapter Four Copyright, John Wiley and Sons, Inc. The SMIE The SMIE is a “small to medium sized organization”  SMIEs account for approximately 94% of all international firms.  They often face serious obstacles to internationalization.

15. Chapter Four Copyright, John Wiley and Sons, Inc. SMIE Obstacles  Integration with international business culture.  Lack of information.  Cost and financing.  Qualified employees.  Regulations and tariffs.  Language skills.  International experience.

16. Chapter Four Copyright, John Wiley and Sons, Inc. SMIE International Advantages SMIEs have been successful in entering the global marketplace – among their advantages:  Motivation – push factors, pull factors, management factors, and chance.  Patterns – SMIE internationalization is typically not incremental.  Profile – the proportion of inter-company resource transfers is higher than MNEs.